Bidders for road projects have raised objections to the termination guarantee clauses in the draft concession document. As a result, the draft document is expected to go through one more round of revision, making it the fourteenth round.
Official sources said that the objection was against the clause that termination guarantee payments would be net of insurance cover. Financial institutions and banks have said that unless this clause was changed, projects are unlikely to become bankable.
According to the draft concession agreement , the termination guarantee payments have been fixed at 175 per cent of the equity in the event of force majeaure as a result of direct political events during the operation and maintenance phase of the project.
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These termination guarantees cover political events such as nationalisation and expropriation For the creditors of the project, the termination payments have been fixed at 75 per cent of the debt .
However, these payments will be net of insurance cover. This definition is a legal minefield, the sources say, since the insurance cover could be much larger than the actual insurance claimed. Besides it is not the claim alone that mattered, but also the admitted claim by the insurance company , they added.
The sources said this definition would result in insufficient termination payments .
As a result, the bidders have sought an amendment to this clause and have suggested that the words insurance cover in the document be replaced with admitted claims by the insurance company.
This change, the sources said, will make the document free from all legal disputes that may arise in future.
The draft document is also expected to sent to some foreign consultants experienced in drafting concession documents for design build finance and operate projects in Britain and build own transfer projects in the United States .
The draft document is a model concession pact for all the 77 road projects being offered to the private sector.
So far bids have been invited only three projects the Jaipur- Kishangarh, the Hosur- Krishnagiri and the Chingelput -Tindivanam road projects.
The document is expected to be presented once more to the high powered committee for approval after revising the clauses. The sources said the draft will be presented to the cabinet for final approval.
The concession document will be signed with the bidders for the three four-laning projects for which bids had been invited after the completion of this procedure .